Experts on global economy

Added On October 14, 2014

The International Monetary Fund and World Bank annual meeting has concluded in Washington.
During the three-day meeting, experts and economists expressed their opinions on the world economic growth.
Economy Report has their words.
Just about half a year ago, many economists believed the global economy was going to undertake a slow but clear takeoff.
But months later now, some began to doubt the coming of the takeoff.
Kaushik Basu, chief economist of the World Bank, is one of them, thinking the takeoff is unsure right now.
His judgment also beats the expectation by the IMF, which lowered its global economic growth forecasts for 2014 and 2015.
Basu even warns of a possibility that the world economy would stall once again, and eurozone and Japan are very likely to be the major victims of the slowdown.
His point of view is echoed by IMF secretary Lin Jianhai.
"The United States is leading in recovery, while Europe as well as Japan are suffering from disappointing domestic demand, which is causing very weak recovery. Emerging markets and developing countries also show signs of slowing down."
Basu also agrees the leading role played by the U.S. in recovery, but notes that the country has its own weakness to deal with, citing the unemployment as an example.
He says the large size of the long-term unemployed in the U.S. is threatening to erode its labor market skills.
SOUNDBITE (ENGLISH): KAUSHIK BASU, Chief Economist of World Bank
"Global labor market has been become a common labor market increasingly all over the world. Today you can sit in Beijing and work for an American company here. You can sit in Deli or Bombay or Manila and work for a Europe company or Australian company. The global labor market is going to a common pool. As this happens, the countries with higher wage feel pressure from labors with cheaper lower wage into this coming pool."
Despite all the adverse conditions, the World Bank economist still has hope for growth, which, he believes, will be driven by the power from the emerging markets.
SOUNDBITE (ENGLISH): KAUSHIK BASU, Chief Economist of World Bank
"But the world's hope in terms of growth driving has to come from the emerging economies over the next 15 years or 20 years which means China will still continue to play a role, India will play a role, Brazil which is right now doing very poorly we hope will join the fare of the other big countries and do better. So the hope lies in the emerging economies being the growth driver."
But not every one is as confident as Basu.
Olivier Blanchard, chief economist with the IMF, says the financial environment facing the emerging markets now is not as friendly as it was years before, as capital flows will likely go back to the U.S.
"It's going to be tougher for some emerging market countries, but the main issue is the decreasing potential growth. In many countries, the easy gains for growth are getting harder." 
China, as one of the leading emerging markets in the world, is also widely discussed.
Let's hear what they have to say.
IMF Chief Economist Olivier Blanchard says that China is expected to grow between 7 percent and 8 percent at current stage. But as it shifts to domestic consumption and services for growth, it could sustain 6 percent growth rate in the longer term.
"Six percent is a good number, much better than many other countries, it's like a marathon. If you run at 10 percent a year, that may be possible, but you will have problems of pollution, urban tensions and all kinds of other issues so 6 percent is a very good number." 
China's economy showed deeper signs of slowdown this summer. A set of economic indicators slipped below their normal level, reigniting the fears of a hard landing of the world's second largest economy.
However, the fear was dismissed after the IMF, in its latest World Economic Outlook, forecast China's economy to grow 7.4 percent this year, and 7.1 percent next year, unchanged from its last forecast in July.
Blanchard explains the reason behind the forecast, saying it's a result after considering that the country's risks of the property sector and shadow banking have been brought under control.
"The housing prices will come down. We do not think it will become a big financial or fiscal issue...It becomes catastrophic when the decrease of the housing price leads to the bankruptcies of banks, households and the state. That's not the case we currently see in China."
As for the shadow banking system, the IMF economist believes the banks behind the system have enough resources to tackle the possible problems if needed.
Though the downward risks in China are not vital to its growth right now, the economist still believes China needs to augment its effort in economy restructuring.
According to Blanchard, China's economy needs to shift from investment dependent mode to consumption-driving mode.
On this point, World Bank economist Basu holds a similar opinion.
SOUNDBITE (ENGLISH): KAUSHIK BASU, Chief Economist of World Bank
"China invest a lot but in some ways a bit too much. Close to half of your economy is being invested, more bridges, more roads, more factories. But so much investment the trouble is the last bits of investment give you very little return by the old fashion economy theory of law of diminishing return. When you do too much of something, the marginal returns go down. When the marginal returns go down, the money that has been invested in those marginal projects will not give the kind of return that the early projects give. So China could feel some pressure from too big investment leading to not enough returns on its invested money, which could cost some strains on the finance factor."
Apart from structure reform, Lin Jianhai with the IMF stresses the role of an increased productivity in sustaining China's growth in the long run.
According to Lin, China has come under rising pressure in raising productivity to keep growth, as the country is entering an aging society.
As China is losing the advantages brought by its huge young population, contribution by labor productivity to annual growth has dropped to around 30 percent from 40 percent during the period between 2000 and 2008.
"To boost productivity, China should increase spending on education and research and development and improve institutional governance."
And Lin believes there's still a huge potential for the country to improve in this sphere.
"The service sector has potential to play a bigger role in boosting growth, as it accounts for 60 percent of a nation's economic output globally, but only 40 percent in China."